Category: Insider Trading
SEC Insider Trading Update: A New Remedy, A Governmental Insider Case, & An Emboldened SEC After Salman
The Securities and Exchange Commission (SEC) recently announced two significant insider trading cases. These pronouncements serve as reminders that the new Commission under the Trump Administration, while pursuing its agenda, will continue to ensure that the financial industry is “playing by the rules.” In addition, these particular cases involve: the SEC using a remedy that it had not used before in this context; and the SEC continuing to investigate and bring cases that involve governmental “insider” information.
Regarding the SEC extending the use of a “tool” from its remedy arsenal to the insider trading area, last week the SEC entered into a settlement with a billion-dollar hedge fund and its founder, which included an undertaking for an independent compliance consultant. The novel extension of this remedy to an insider trading settlement prompted the Acting Enforcement Division Director to issue a statement. … Read More »
In Salman v. United States, 580 U.S. __ (2016), the U.S. Supreme Court upheld Bassam Salman’s conviction, giving prosecutors a win on the first insider trading case to be heard by the Court in nearly two decades. The unanimous decision, written by Justice Samuel Alito, is short and to the point. The Court reaffirmed the continued validity of Dirks v. S.E.C., 463 U.S. 646 (1983), and determined that a tipper receives a personal benefit by providing insider information to a “trading relative or friend.”
In Dirks, the Court ruled that a tippee’s liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information. The fiduciary duty is breached when the insider will personally benefit, directly or indirectly, from his disclosure. In Salman, the Supreme Court stated that the benefit did not have to … Read More »
The Supreme Court Appears Poised to Reaffirm Dirks v. SEC and Maintain Current Insider Trading Rules
For the first time in two decades, the Supreme Court heard oral argument in a case that could change the landscape for the government’s pursuit of insider trading violations. In Salman v. United States (Dkt. No. 15-628), the Court reviewed the government’s burden of proof when it prosecutes for insider trading. Specifically, the primary issue involves whether Salman’s “tipper” had received the kind of “personal benefit” required by precedent to hold Salman criminally liable for insider trading. The United States Court of Appeals for the Ninth Circuit affirmed Salman’s conviction. However, just two years ago, the United States Court of Appeals for the Second Circuit overturned the convictions of several insider traders because the government failed to establish that the insiders had received “a potential gain of a pecuniary or similar valuable nature.” In other words, the Second Circuit rejected … Read More »
The First Circuit recently added to the increasingly ambiguous personal benefit requirement, finding that an alleged friendship and promises for free “wine, steak, and visits to a massage parlor” were enough to support a misappropriation theory of liability for insider trading. United States v. Parigian, — F.3d —, No. 15-1994, 2016 WL 3027702, at *2 (1st Cir. May 26, 2016). As highlighted in previous posts, the Second and Ninth Circuits have interpreted the personal benefit requirement differently, and in January, the Supreme Court granted certiorari to review the issue.
Parigian pleaded guilty to criminal securities fraud on the condition that he could appeal the denial of his motion to dismiss the superseding indictment for failing to allege a crime. Id. at *1. The indictment alleged that Parigian’s golfing buddy, Eric McPhail, provided nonpublic information to Parigian that McPhail had received from … Read More »
Insider-Trading Prosecutions Continue Post-Newman: USAO/SDNY and SEC Press Charges Against Ex-Barclays Director and Plumber
Perhaps looking to put Newman in the rearview mirror, the U.S. Attorney for the Southern District of New York (“USAO/SDNY”) and the Securities and Exchange Commission (“SEC”) recently brought charges against former Barclays Bank PLC director Steven McClatchey alleging that tips that he provided to a plumber, Gary Pusey, relating to at least ten impending M&A deals resulted in illicit gains of $76,000. The allegations are a distinct departure from the “misappropriation” claims pursued pre-Newman and demonstrate the pursuit of more traditional insider-trading theories reminiscent of those popularized in films such as 1987’s “Wall Street,” with the USAO/SDNY and SEC focusing on in-person meetings between Messrs. McClatchey and Pusey at a Long Island marina where cash was exchanged in a gym bag for tips on the yet-to-be-announced transactions. It will be interesting to see over the coming months whether federal authorities will … Read More »
The U.S. Supreme Court granted certiorari this week in a case that is sure to draw significant attention given its likely implications on insider trading liability. Bassam Salman filed the petition after the Ninth Circuit affirmed his insider trading conviction in United States v. Salman, 792 F.3d 1087 (9th Cir. 2015).
Salman was convicted of conspiracy and insider trading arising out of a trading scheme involving members of his extended family. During the time period at issue, Maher Kara, Salman’s future brother-in-law, had access to insider information regarding mergers and acquisitions of and by his firm’s clients that he provided to his brother, Michael Kara. Michael subsequently traded on the information. Michael then shared the information he learned from Maher with Salman. Salman also traded on the information.
Following his conviction, Salman appealed and argued that there was no evidence that he … Read More »
In a victory for the U.S. Securities and Exchange Commission (“SEC”), Judge Rakoff of the U.S. District Court for the Southern District of New York recently held that the U.S. Court of Appeals for the Second Circuit’s landmark insider trading ruling in United States v. Newman, 773 F. 3d 438 (2d Cir. 2014) did not preclude a civil enforcement action against two Euro Pacific Capital Inc. brokers (Daryl Payton and Benjamin Durant) whose criminal charges relating to the very same conduct were dismissed in January at the request of federal prosecutors.
The civil case and related criminal charges against the two brokers stem from allegations that an associate at the law firm Cravath Swaine & Moore LLP provided a former Bank of Scotland research analyst (Trent Martin) with material non-public information about a planned acquisition of SPSS Inc. by Cravath’s client … Read More »
In what is possibly a harbinger of how other courts will interpret the U.S. Court of Appeals for the Second Circuit’s landmark insider trading ruling in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), Judge Andrew Carter of the U.S. District Court for the Southern District of New York recently rejected the Government’s arguments that tipping liability was different in insider trading cases based on the “misappropriation theory” – which provides that individuals who trade on confidential information in breach of a duty of trust and confidence owed to the source of the information can face liability even though they are not corporate insiders – and vacated the guilty pleas of a former Bank of Scotland research analyst (Trent Martin) and three Euro Pacifica Capital Inc. brokers (Thomas Conradt, David Weishaus, and Daryl Payton).
The charges against the four individuals … Read More »
In a landmark ruling that is likely to reshape the landscape of insider-trading prosecutions of “tippees,” a three-judge panel of the U.S. Court of Appeals for the Second Circuit reversed the convictions of former portfolio managers from Level Global Investors LP (Anthony Chiasson) and Diamondback Capital Management LLC (Todd Newman), finding that they did not know the alleged sources of inside information had disclosed the tips in exchange for a personal benefit. United States v. Newman, Nos. 13-1837-cr (L), 13-191-cr (con), slip op. at 4 (2d Cir. Dec. 10, 2014)
Chiasson and Newman were convicted in 2012 of illegally trading Dell and Nvidia stock on the basis of information they received from individuals three and four levels removed from the technology-industry insider tippers. The defendants had no contact with the tippers. Id. at 5. Moreover, the Government offered no evidence … Read More »
The SEC announced last week that it had charged, in settled administrative proceedings, 28 individuals and investment firms that failed to “promptly report information about their holdings and transactions in company stock” and six public companies that contributed to “filing failures by insiders or fail[ed] to report their insiders’ filing delinquencies.” See SEC Press Release: “SEC Announces Charges Against Corporate Insiders for Violating Laws Requiring Prompt Reporting of Transactions and Holdings.” The SEC obtained a total of $2.6 million in civil monetary penalties as a result of the filed charges. The individual amounts ranged from $25,000 to $150,000. These cases are the latest example of the SEC’s focus on strict liability violations of the federal securities laws.
All of the charges arise under Sections 13(d), 13(g), and 16(a) of the Securities Exchange Act of 1934. These sections require certain forms to … Read More »